There have been concerns about the recent liquidity crisis in the crypto industry having an impact on crypto exchange Coinbase. However, the Nasdaq-listed crypto exchange allayed worries by disclosing that the company had absolutely no counterparty exposure to the various crypto companies that have collapsed.
On Wednesday, Coinbase announced in a blog post that the company had no ‘financing exposure’ to Voyager Digital, Celsius Network, or Three Arrows Capital. Each of these companies has become quite notorious these days because they filed for bankruptcy protection one after the other because of a plunge in the prices of cryptocurrencies.
This volatility in the crypto market led to a series of liquidations in companies that had highly leveraged positions. After the statement from Coinbase, the company’s shares recorded gains of 10%. The crypto exchange said a number of these companies had been overleveraged because their short-term liabilities did not match their long-term illiquid assets.
The exchange added that they had steered clear of such risky lending practices because their focus was to use prudence for financing their business and to stay focused on their clients.
Even though Coinbase clarified that it had not been exposed to the three crypto companies that had filed for bankruptcy recently, it did reveal that there were some non-material investments that had been made in the Singapore-based company, Terraform Labs. The company is behind the TerraUSD (UST) stablecoin that failed in May and brought down the LUNA token as well.
As a matter of fact, Terra played a key role in bringing down 3AC, Voyager Digital, and Celsius Network, as these companies had been exposed to it. The update from Coinbase is to give reassurance to its investors that it will not suffer the same consequences as its peers.
Since the beginning of the year, the company has seen its stock price fall by almost 70%, as investors in both the stock and crypto market were shaken by the aggressive monetary policy tightening by the US Central bank.
Ever since the UST algorithmic stablecoin collapsed, the crypto market has found itself in a state of disarray. This resulted in liquidity issues in various companies like 3AC and Celsius, as these had used borrowed funds for making risky gambles in the crypto space.
When crypto prices started falling, people wanted to take out their investments from 3AC and Celsius, but the companies were unable to process withdrawal requests because of falling asset prices. Therefore, they first halted withdrawals and then eventually filed for bankruptcy.
As far as Coinbase is concerned, not only has it seen its share price drop, but crypto trading volumes have also gone down significantly this year. This has obviously eaten into the company’s profits, prompting it to lay off some of its staff to bring costs down.
Moreover, the publicly-listed exchange is also focusing on its expansion in Europe, as it recently obtained regulatory approval for offering its services in Italy and plans to do the same in other countries.